Why is "Raising and writing off goodwill in the same ratio" a common mistake in Goodwill?

Why it happens: Not noticing the ratio changes. How to avoid it: Raise in the OLD ratio, write off in the NEW ratio — if they are the same, the adjustment cancels and is pointless. Source: 9706 Examiner Reports

Why is "Forgetting to credit a retiring partner with goodwill" a common mistake in Goodwill?

Why it happens: Only writing off in the continuing partners' ratio. How to avoid it: A retiring partner must be CREDITED with their goodwill share (old ratio) — it is part of what they are owed. Source: 9706 Examiner Reports

Why is "Putting goodwill through the income statement" a common mistake in Goodwill?

Why it happens: Treating it like an expense. How to avoid it: Goodwill adjustments go through the partners' CAPITAL accounts, not the income statement. Source: 9706 Examiner Reports

Why is "Including the new partner when raising goodwill" a common mistake in Goodwill?

Why it happens: Using the new ratio for the raise. How to avoid it: Raise goodwill among the OLD partners only, in the OLD ratio; the new partner shares only at write-off. Source: 9706 Examiner Reports

Why is "Crediting partners whose share rises" a common mistake in Goodwill?

Why it happens: Confusing the direction of the adjustment. How to avoid it: A share that FALLS gives a net CREDIT; a share that RISES gives a net DEBIT (net = goodwill × (old − new)). Source: 9706 Examiner Reports

Why is "Claiming goodwill is always shown in the accounts" a common mistake in Goodwill?

Why it happens: Forgetting it is normally written off. How to avoid it: Internally-generated goodwill is NOT normally recorded; under raise-and-write-off none remains in the accounts. Source: 9706 Examiner Reports

Cambridge International A Levels Accounting (9706)

Goodwill

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Detailed Study Notes

Detailed notes on Financial statements for Partnerships for Cambridge International A Levels Accounting, covering key concepts, explanations, examples, and exam-focused revision points.

Partnership Goodwill — Cambridge AS & A Level Accounting 9706 Study Notes (2026-2028)

Accounting for goodwill on a change in a partnership. Learn what goodwill is, why it is adjusted when partners are admitted, retire or change their profit-sharing ratio, and how to raise and write off goodwill through the partners' capital accounts in the old and new ratios.

At a glance

Goodwill = the value of a business above its identifiable net assets (reputation, customers, location).
It is not normally shown in the accounts (an internally-generated intangible) — but is adjusted on a change.
Goodwill is adjusted when partners are admitted, retire/die, or change the profit-sharing ratio.
Why: the change in ratio means the old partners would otherwise gain or lose their share of goodwill unfairly.
Method: raise goodwill in the OLD ratio (credit old partners), then write it off in the NEW ratio (debit new partners).
Net effect compensates the partners whose share of goodwill falls and charges those whose share rises.
Goodwill is debited/credited to the capital accounts (not the income statement).

What you’ll learn

Mapped to the Cambridge International A Level 9706 syllabus (2026-2028).

3.1.2 — Understand the nature of goodwill in a partnership.
3.1.2 — Account for goodwill on the admission, retirement or death of a partner and on a change in profit-sharing ratio.
Raise and write off goodwill through the partners' capital accounts.

What goodwill is

The value of a business above its identifiable net assets.

Goodwill is the amount by which the value of a business as a whole exceeds the value of its identifiable net assets (assets − liabilities). It arises from things like:

a good reputation and brand,
a loyal customer base,
a good location,
skilled staff and established supplier relationships.

Goodwill is an intangible asset. Internally-generated goodwill is not normally recorded in the accounts (it is difficult to value reliably and would breach prudence). However, when there is a change in the partnership — a new partner joins, one leaves, or the partners change how they share profits — goodwill must be brought into account so that the change is fair to everyone.

Goodwill = value of the business above its identifiable net assets.
Arises from reputation, customers, location, staff.
An intangible asset; internally-generated goodwill is not normally recorded.
Brought into account when the partnership changes.

See the full worked example for goodwill →

Why goodwill is adjusted on a change

Goodwill built up by the old partners must be credited to them before the ratio changes.

Goodwill is built up over time by the existing partners. If the profit-sharing ratio changes (because a partner joins, leaves, or the ratio is altered), then without an adjustment:

a partner whose share falls would lose part of the goodwill they helped create;
a partner whose share rises (e.g. a new partner) would gain a share of goodwill for free.

To be fair, the goodwill existing at the date of change is shared among the old partners in their old ratio (it belongs to them), and then borne by the partners going forward in their new ratio. This is the principle behind every goodwill adjustment: credit the old partners for the goodwill they created; charge the new arrangement for carrying it.

Goodwill is created by the existing partners over time.
A change in ratio would unfairly transfer goodwill between partners.
Credit old partners (old ratio) for goodwill they created.
Charge the partners going forward (new ratio) for carrying it.

See the full worked example for goodwill →

The raise-and-write-off method

Raise goodwill in the old ratio, then write it off in the new ratio.

The standard method keeps goodwill out of the final accounts but still shares it fairly:

Step 1 — Raise goodwill (old ratio). Debit Goodwill account; credit each old partner's capital account in the old profit-sharing ratio. This credits the existing partners with the goodwill they built up.

Step 2 — Write off goodwill (new ratio). Credit Goodwill account (back to zero); debit each partner's capital account in the new profit-sharing ratio. This charges the new arrangement with carrying the goodwill.

The net effect on each partner's capital account is the combination of the two steps:

$\text{Net adjustment} = (\text{Goodwill} \times \text{old share}) - (\text{Goodwill} \times \text{new share})$

A partner whose share falls ends up better off (net credit); one whose share rises (e.g. a new partner) ends up worse off (net debit) — exactly the fair result. Because goodwill is raised then written off, no goodwill remains in the statement of financial position.

Step 1: Dr Goodwill, Cr old partners' capital in the OLD ratio.
Step 2: Cr Goodwill, Dr partners' capital in the NEW ratio.
Net adjustment per partner = goodwill × (old share − new share).
No goodwill remains in the statement of financial position.

See the full worked example for goodwill →

Goodwill on admission, retirement and death

The same principle applies whenever the ratio changes.

The raise-and-write-off principle applies to every change in the partnership:

Admission of a partner. The old partners' ratio (before) is the old ratio; the ratio including the new partner is the new ratio. The new partner effectively pays the old partners for a share of goodwill via the net write-off (debited to their capital).
Retirement or death of a partner. The outgoing partner is credited with their share of goodwill (in the old ratio) — part of the amount owed to them (or their estate). The continuing partners bear the goodwill in their new ratio.
Change in profit-sharing ratio (same partners). Goodwill is raised in the old ratio and written off in the new ratio, compensating the partner whose share falls.

If the partners decide to keep goodwill in the books, only Step 1 is done (goodwill stays as an asset). The syllabus most often expects the raise-and-write-off approach, leaving no goodwill in the accounts.

Admission: new partner charged for goodwill via the write-off.
Retirement/death: outgoing partner credited with their goodwill share.
Change in ratio: compensates the partner whose share falls.
If goodwill is retained, only Step 1 is done (asset remains).

Quick recap

Goodwill = the value of the business above its identifiable net assets.
Internally-generated goodwill is not normally recorded, but is adjusted on a change.
Adjust goodwill on admission, retirement/death or a change in profit-sharing ratio.
Raise goodwill in the OLD ratio (credit old partners), write off in the NEW ratio (debit partners).
Net adjustment per partner = goodwill × (old share − new share).
Raise-and-write-off leaves no goodwill in the statement of financial position.

Memorise this

Verbatim phrases and definitions Cambridge mark schemes credit.

Goodwill = value of business − identifiable net assets.
Raise in the OLD ratio (Dr Goodwill, Cr old partners); write off in the NEW ratio (Cr Goodwill, Dr partners).
Net adjustment = goodwill × (old share − new share).
Raise-and-write-off → no goodwill remains in the accounts.

How it’s examined

Tested on Paper 3: adjust capital accounts for goodwill on admission, retirement or a change in ratio (commonly [4-8] marks within a partnership question), and explain why goodwill is adjusted. Examiner reports note candidates raising and writing off goodwill in the same ratio (so the adjustment cancels), and forgetting to credit a retiring partner with goodwill.

Sources: Cambridge International AS & A Level Accounting 9706 syllabus (2026-2028); 9706 Paper 3 past papers & mark schemes, 2022-2024; 9706 Examiner Reports, 2022-2024. Last reviewed 2026-06-18.

Take this whole topic with you

Step-by-step worked examples — Goodwill

Step-by-step solutions to past-paper-style questions on goodwill, written exactly the way a tutor would explain them at the board.

Question type:

1What goodwill is (3 marks)
Getting startedWord problem• 9706 Paper 3 style• goodwill, AO1
Question
State what is meant by goodwill and give two factors that create it. (3 marks)
Step-by-step solution
1. Step 1
  Goodwill is the amount by which the value of a business exceeds its identifiable net assets.
2. Step 2
  It is an intangible asset.
3. Step 3
  Two factors: a good reputation/brand and a loyal customer base (also: location, skilled staff).
Answer
Goodwill = value of business above its net assets; created by reputation, customers, location, staff.
Examiner tip
Define it as the excess over identifiable net assets, then give creating factors.
2Why goodwill is adjusted (4 marks)
Getting startedWord problem• goodwill, AO2
Question
Explain why goodwill is adjusted when a new partner is admitted. (4 marks)
Step-by-step solution
1. Step 1
  Goodwill was built up by the existing partners before the new partner joined.
2. Step 2
  Without adjustment, the new partner would gain a share of that goodwill for free.
3. Step 3
  And the old partners would lose part of the goodwill they created.
4. Step 4
  Adjusting goodwill ensures the old partners are credited for it and the new partner pays their share — making the change fair.
Answer
To credit the old partners for goodwill they created before the new partner shares in it.
Examiner tip
The key idea is fairness: goodwill belongs to those who created it.
3Raise goodwill in the old ratio (4 marks)
Building confidenceMulti-step problem• goodwill, AO2
Question
Goodwill is valued at $60,000. Partners A and B shared profits 3:2. Show the entry to raise goodwill. (4 marks)
Step-by-step solution
1. Step 1
  Raise goodwill in the OLD ratio 3:2 (total 5).
2. Step 2
  Dr Goodwill account $60,000.
3. Step 3
  Cr A's capital = 60,000 × 3/5 = $36,000.
4. Step 4
  Cr B's capital = 60,000 × 2/5 = $24,000.
Answer
Dr Goodwill $60,000; Cr A$ 36,000, Cr B $24,000.
Examiner tip
Raising goodwill credits the OLD partners in the OLD ratio.
4Write off goodwill in the new ratio (4 marks)
Building confidenceMulti-step problem• goodwill, AO2
Question
Goodwill of $60,000 is to be written off. After admitting C, the new ratio is A:B:C = 2:2:1. Show the write-off entry. (4 marks)
Step-by-step solution
1. Step 1
  Write off in the NEW ratio 2:2:1 (total 5).
2. Step 2
  Cr Goodwill account $60,000 (back to zero).
3. Step 3
  Dr A = 60,000 × 2/5 = $24,000; Dr B = 60,000 × 2/5 = $24,000.
4. Step 4
  Dr C = 60,000 × 1/5 = $12,000.
Answer
Cr Goodwill $60,000; Dr A$ 24,000, Dr B $24,000, Dr C$ 12,000.
Examiner tip
Writing off debits ALL partners (incl. the new one) in the NEW ratio.
5Net goodwill adjustment on admission (6 marks)
StretchMulti-step problem• goodwill, AO2
Question
A and B shared 3:2. C is admitted; new ratio 2:2:1. Goodwill is $60,000, raised and written off (not retained). Calculate the net effect on each partner's capital. (6 marks)
Step-by-step solution
1. Step 1
  Raise (old 3:2): A +36,000; B +24,000; C +0.
2. Step 2
  Write off (new 2:2:1): A −24,000; B −24,000; C −12,000.
3. Step 3
  Net A = 36,000 − 24,000 = +$12,000 (credit).
4. Step 4
  Net B = 24,000 − 24,000 = $0.
5. Step 5
  Net C = 0 − 12,000 = −$12,000 (debit).
6. Step 6
  Check: +12,000 + 0 − 12,000 = 0 ✓. C effectively pays A $12,000 for goodwill.
Answer
A + $12,000; B nil; C −$ 12,000 (nets to zero).
Examiner tip
Net = goodwill × (old share − new share). The credits and debits sum to zero.
6Net adjustment by formula (5 marks)
StretchMulti-step problem• goodwill, AO2
Question
Goodwill $50,000. X and Y shared 1:1; they change to 3:2. Use the formula net = goodwill × (old share − new share) for each. (5 marks)
Step-by-step solution
1. Step 1
  Old shares: X 1/2, Y 1/2. New shares: X 3/5, Y 2/5.
2. Step 2
  X net = 50,000 × (1/2 − 3/5) = 50,000 × (−1/10) = −$5,000 (debit).
3. Step 3
  Y net = 50,000 × (1/2 − 2/5) = 50,000 × (1/10) = +$5,000 (credit).
4. Step 4
  Check: −5,000 + 5,000 = 0 ✓.
Answer
X − $5,000; Y +$ 5,000.
Examiner tip
X's share rose (1/2→3/5) so X is debited; Y's share fell so Y is credited.
7Goodwill on retirement (6 marks)
StretchMulti-step problem• goodwill, retirement, AO2
Question
P, Q and R shared 2:2:1. R retires; P and Q continue 1:1. Goodwill is $40,000, raised and written off. Calculate the net goodwill effect on each partner. (6 marks)
Step-by-step solution
1. Step 1
  Raise (old 2:2:1): P +16,000; Q +16,000; R +8,000.
2. Step 2
  Write off (new 1:1, R gone): P −20,000; Q −20,000; R −0.
3. Step 3
  Net P = 16,000 − 20,000 = −$4,000; net Q = −$4,000.
4. Step 4
  Net R = 8,000 − 0 = +$8,000 (credited with R's goodwill share).
5. Step 5
  Check: −4,000 − 4,000 + 8,000 = 0 ✓.
Answer
P − $4,000; Q −$ 4,000; R +$8,000 (R credited on retirement).
Examiner tip
A retiring partner is credited with their share of goodwill (added to what they are owed).
8If goodwill is retained (4 marks)
StretchWord problem• goodwill, AO2
Question
Explain what happens if the partners decide to keep goodwill in the books rather than write it off. (4 marks)
Step-by-step solution
1. Step 1
  Only Step 1 is done: Dr Goodwill, Cr old partners in the OLD ratio.
2. Step 2
  The goodwill account is not written off, so goodwill remains as an intangible asset.
3. Step 3
  It appears in the statement of financial position.
4. Step 4
  The old partners are still credited for the goodwill they created, but no write-off charges the new arrangement.
Answer
Only raise goodwill (old ratio); it stays as an asset in the statement of financial position.
Examiner tip
Retaining goodwill = raise only; the syllabus usually expects raise-and-write-off instead.
9Why goodwill is not normally recorded (4 marks)
StretchWord problem• goodwill, AO3
Question
Explain why internally-generated goodwill is not normally shown in a business's accounts. (4 marks)
Step-by-step solution
1. Step 1
  It is difficult to value reliably — its value is subjective and changes constantly.
2. Step 2
  Recording an uncertain asset would breach prudence (assets must not be overstated).
3. Step 3
  It is not purchased, so there is no objective cost to record.
4. Step 4
  It is only brought into account when there is a change in the partnership (or a sale), to keep the change fair.
Answer
It cannot be valued reliably and was not purchased, so prudence keeps it out except on a change.
Examiner tip
Link to prudence and reliable measurement; contrast with purchased goodwill.
10Check the adjustment sums to zero (4 marks)
StretchMulti-step problem• goodwill, AO2
Question
L and M shared 5:3 and change to 1:1. Goodwill is $32,000. Calculate each partner's net adjustment and verify it balances. (4 marks)
Step-by-step solution
1. Step 1
  Old: L 5/8, M 3/8. New: L 1/2 (4/8), M 1/2 (4/8).
2. Step 2
  L net = 32,000 × (5/8 − 4/8) = 32,000 × 1/8 = +$4,000.
3. Step 3
  M net = 32,000 × (3/8 − 4/8) = 32,000 × (−1/8) = −$4,000.
4. Step 4
  Check: +4,000 − 4,000 = 0 ✓ (L's share fell so L is credited).
Answer
L + $4,000; M −$ 4,000 (balances to zero).
Examiner tip
The net credits and debits across all partners always sum to zero.

Model Answers — Goodwill

High-scoring sample answers for goodwill on the Cambridge IGCSE paper, with examiner-style notes mapping each response to the mark scheme and assessment objectives.

Question 1
9706 Paper 3 style3 marks
Q (3 marks). Explain what is meant by goodwill and state two factors that give rise to it.
Model answer
Goodwill is the amount by which the value of a business as a whole exceeds the value of its identifiable net assets. Two factors that create it: a good reputation/established customer base, and a favourable location (also accept skilled staff, brand, supplier relationships).
Why this scores
Marking (point-based, 3). Definition (1); two factors (2).
Question 2
9706 Paper 3 style4 marks
Q (4 marks). Explain why goodwill is brought into account when a new partner is admitted to a partnership.
Model answer
Goodwill was built up by the existing partners before the new partner joined, so it belongs to them. If goodwill were ignored, the new partner would obtain a share of it for free and the existing partners would lose part of what they created. Bringing goodwill into account credits the old partners for it (in their old ratio) and effectively makes the new partner pay for their share, so the admission is fair.
Why this scores
Marking (point-based, 4). Goodwill created by old partners (1); new partner would gain free (1); old partners lose (1); adjustment makes it fair (1).
Question 3
9706 Paper 3 style4 marks
Q (4 marks). Partners D and E share profits 5:3. Goodwill is valued at $48,000. Show the entries to raise goodwill in the books.
Model answer
Raise in the old ratio 5:3 (total 8): Dr Goodwill $48,000; Cr D's capital = 48,000 × 5/8 = $30,000; Cr E's capital = 48,000 × 3/8 = $18,000.
Why this scores
Marking (point-based, 4). Dr Goodwill (1); D $30,000 (1.5); E$ 18,000 (1.5).
Question 4
9706 Paper 3 style6 marks
Q (6 marks). F and G shared profits 3:1. H is admitted and the new ratio is 2:1:1. Goodwill of $40,000 is to be raised and immediately written off. Calculate the net effect of the goodwill adjustment on each partner's capital account.
Model answer
Raise (old 3:1): F +30,000; G +10,000; H +0. Write off (new 2:1:1, total 4): F −20,000; G −10,000; H −10,000. Net: F = 30,000 − 20,000 = +$10,000; G = 10,000 − 10,000 = $0; H = 0 − 10,000 = −$10,000. (Check: +10,000 + 0 − 10,000 = 0 ✓ — H effectively pays F $10,000 for goodwill.)
Why this scores
Marking (point-based, 6). Raise figures (2); write-off figures (2); net per partner balancing to zero (2).
Question 5
9706 Paper 3 style6 marks
Q (6 marks). J, K and L shared profits 3:2:1. L retires and J and K continue sharing 3:2. Goodwill is valued at $36,000, raised and written off. Calculate the net goodwill adjustment for each partner.
Model answer
Raise (old 3:2:1, total 6): J +18,000; K +12,000; L +6,000. Write off (new 3:2, total 5; L gone): J −21,600; K −14,400; L −0. Net: J = 18,000 − 21,600 = −$3,600; K = 12,000 − 14,400 = −$2,400; L = 6,000 − 0 = +$6,000. (Check: −3,600 − 2,400 + 6,000 = 0 ✓.) L is credited with $6,000 of goodwill, added to the amount owed to L on retirement.
Why this scores
Marking (point-based, 6). Raise (2); write-off in new ratio (2); net incl. L credited $6,000 (2).
Question 6
9706 Paper 3 style5 marks
Q (5 marks). Partners M and N currently share profits equally and decide to change to 3:2. Goodwill is valued at $25,000 and is to be raised and written off. Calculate the net goodwill adjustment for each partner and state who is compensated.
Model answer
Old shares: M 1/2, N 1/2. New shares: M 3/5, N 2/5. M net = 25,000 × (1/2 − 3/5) = 25,000 × (−1/10) = −$2,500. N net = 25,000 × (1/2 − 2/5) = 25,000 × (1/10) = +$2,500. N is compensated ($2,500 credit) because N's profit share has fallen; M's share has risen, so M bears the cost.
Why this scores
Marking (point-based, 5). M − $2,500 (2); N +$ 2,500 (2); N compensated as share fell (1).
Question 7
9706 Paper 3 style6 marks
Q (6 marks). Explain why internally-generated goodwill is not normally recorded in the accounts, but is brought into account when there is a change in a partnership.
Model answer
Not normally recorded: internally-generated goodwill is difficult to value reliably — its value is subjective and constantly changing — and it has not been purchased, so there is no objective cost. Recording such an uncertain asset would overstate assets and breach the prudence concept, so it is excluded from the ordinary accounts.

Brought into account on a change: when a partner is admitted, retires or the profit-sharing ratio changes, the goodwill existing at that date belongs to the old partners. To keep the change fair, goodwill is raised in the old ratio (crediting the old partners) and usually written off in the new ratio (charging the partners going forward). This compensates the partners whose share falls and charges those whose share rises, without leaving goodwill in the accounts.
Why this scores
Marking (point-based, 6). Not recorded — unreliable/not purchased/prudence (~3); brought in on change — fairness/raise-and-write-off (~3).
Question 8
9706 Paper 3 style4 marks
Q (4 marks). P and Q shared profits 2:1 and change to 1:1. Goodwill is $30,000. Using net adjustment = goodwill × (old share − new share), calculate each partner's net goodwill adjustment.
Model answer
Old: P 2/3, Q 1/3. New: P 1/2, Q 1/2. P = 30,000 × (2/3 − 1/2) = 30,000 × (1/6) = +$5,000. Q = 30,000 × (1/3 − 1/2) = 30,000 × (−1/6) = −$5,000. (P's share fell, so P is credited; Q's share rose, so Q is debited. Check: +5,000 − 5,000 = 0 ✓.)
Why this scores
Marking (point-based, 4). P + $5,000 (2); Q −$ 5,000 (2). Direction correct.
Question 9
9706 Paper 3 style4 marks
Q (4 marks). Partners agree to value goodwill at $20,000 and to retain it in the books rather than write it off. Explain the entries made and where goodwill then appears.
Model answer
Only the raising entry is made: Dr Goodwill $20,000, Cr the old partners' capital accounts in the old profit-sharing ratio. Because there is no write-off, the goodwill account is not cleared, so goodwill remains as an intangible non-current asset in the statement of financial position.
Why this scores
Marking (point-based, 4). Dr Goodwill / Cr old partners old ratio (2); no write-off (1); shown as intangible asset (1).
Question 10
9706 Paper 3 style3 marks
Q (3 marks). Under the raise-and-write-off method, explain why no goodwill remains in the statement of financial position and why the net adjustments sum to zero.
Model answer
Goodwill is first raised (Dr Goodwill) and then written off (Cr Goodwill) by the same amount, so the goodwill account returns to zero — none remains in the statement of financial position. The total credits on raising equal the total debits on writing off (both equal the goodwill value), so the net adjustments across all partners sum to zero.
Why this scores
Marking (point-based, 3). Raise then write off same amount → zero (2); credits = debits → net zero (1).

Key Formulae — Goodwill

The formulae you need to memorise for goodwill on the Cambridge IGCSE paper, with every variable defined in plain English and a note on when to use it.

Net goodwill adjustment per partner
$Net\ adjustment = Goodwill \times (Old\ share - New\ share)$
$Goodwill$
total value of goodwill
$Old share$
partner's fraction in the old profit-sharing ratio
$New share$
partner's fraction in the new ratio
When to use
To find the net credit (+) or debit (−) to each partner's capital under raise-and-write-off.
Example
60,000 × (3/5 − 2/5) = +$12,000 for a partner.

Key Definitions and Keywords — Goodwill

Definitions to memorise and the exact keywords mark schemes credit for goodwill answers — sharpened from recent examiner reports for the 2026 Cambridge IGCSE sitting.

Goodwill
Examiner keyword
The amount by which the value of a business exceeds the value of its identifiable net assets.
Intangible asset
Examiner keyword
An asset without physical substance (e.g. goodwill, a brand); internally-generated goodwill is not normally recorded.
Raising goodwill
Examiner keyword
Dr Goodwill, Cr the old partners' capital accounts in the OLD profit-sharing ratio.
Writing off goodwill
Examiner keyword
Cr Goodwill, Dr the partners' capital accounts in the NEW profit-sharing ratio.
Profit-sharing ratio (PSR)
Examiner keyword
The ratio in which partners share profits and losses; goodwill is raised in the old PSR and written off in the new PSR.
Admission of a partner
A new partner joins; the old ratio is before, the new ratio includes the new partner.
Retirement of a partner
A partner leaves; they are credited with their goodwill share, and the continuing partners bear goodwill in the new ratio.

Common Mistakes and Misconceptions — Goodwill

The traps other students keep falling into on goodwill questions — taken from recent Cambridge IGCSE examiner reports and mark schemes — and how to avoid them.

✕Raising and writing off goodwill in the same ratio
9706 Examiner Reports
Why it happens
Not noticing the ratio changes.
How to avoid it
Raise in the OLD ratio, write off in the NEW ratio — if they are the same, the adjustment cancels and is pointless.
✕Forgetting to credit a retiring partner with goodwill
9706 Examiner Reports
Why it happens
Only writing off in the continuing partners' ratio.
How to avoid it
A retiring partner must be CREDITED with their goodwill share (old ratio) — it is part of what they are owed.
✕Putting goodwill through the income statement
9706 Examiner Reports
Why it happens
Treating it like an expense.
How to avoid it
Goodwill adjustments go through the partners' CAPITAL accounts, not the income statement.
✕Including the new partner when raising goodwill
9706 Examiner Reports
Why it happens
Using the new ratio for the raise.
How to avoid it
Raise goodwill among the OLD partners only, in the OLD ratio; the new partner shares only at write-off.
✕Crediting partners whose share rises
9706 Examiner Reports
Why it happens
Confusing the direction of the adjustment.
How to avoid it
A share that FALLS gives a net CREDIT; a share that RISES gives a net DEBIT (net = goodwill × (old − new)).
✕Claiming goodwill is always shown in the accounts
9706 Examiner Reports
Why it happens
Forgetting it is normally written off.
How to avoid it
Internally-generated goodwill is NOT normally recorded; under raise-and-write-off none remains in the accounts.

Goodwill

Detailed Study Notes

At a glance

What you’ll learn

Quick recap

Memorise this

How it’s examined

Take this whole topic with you

1What goodwill is (3 marks)

2Why goodwill is adjusted (4 marks)

3Raise goodwill in the old ratio (4 marks)

4Write off goodwill in the new ratio (4 marks)

5Net goodwill adjustment on admission (6 marks)

6Net adjustment by formula (5 marks)

7Goodwill on retirement (6 marks)

8If goodwill is retained (4 marks)

9Why goodwill is not normally recorded (4 marks)

10Check the adjustment sums to zero (4 marks)

Net goodwill adjustment per partner

Goodwill

Intangible asset

Raising goodwill

Writing off goodwill

Profit-sharing ratio (PSR)

Admission of a partner

Retirement of a partner

✕Raising and writing off goodwill in the same ratio

✕Forgetting to credit a retiring partner with goodwill

✕Putting goodwill through the income statement

✕Including the new partner when raising goodwill

✕Crediting partners whose share rises

✕Claiming goodwill is always shown in the accounts